Fiscal decentralisation in China: Is the guarantee of improving energy efficiency?

Abstract

China's fiscal decentralisation system has led to the increase of local governments' independent decision-making power, which promotes to the optimisation of industrial structure and has an impact on energy efficiency. This study analyzes the social network of energy efficiency based on gravity model, and uses dynamic SAR (Spatial Auto-Regressive) model to test the impact path of Fiscal Decentralisation (FD) on China's Energy Efficiency (EE). Firstly, the results show that China's energy efficiency decreases from Eastern to Western regions, but the energy gap between the three areas has gradually narrowed in recent years, and there are great differences in the distribution and trend of energy efficiency between the secondary and tertiary industries. Secondly, social network analysis highlights that the energy efficiency of each province presents a complex and multi-threaded spatial spillover relationship. It slowly radiates from the economically developed Eastern coastal provinces to the surrounding areas, driving underdeveloped regions. Then, fiscal decentralisation positively impacts energy efficiency by upgrading industrial structure (IS), which has also been verified by the Eastern, Central and Western regions. The theoretical model supports the view that when environmental governance is included in the utility function of local government, officials may invest more financial funds in environmental improvement. Finally, the heterogeneity analysis shows that fiscal decentralisation in the Eastern region has the most significant effect on energy efficiency while the Western region has the least. Governments should plan differentiated green development policies to continuously strengthen the supervision and management of industrial energy consumption in the backward areas.